Tuesday, 31 January 2017

First time ever that Pak army
backs action against India-focused jihadis

By Ajai Shukla

Business Standard, 1st Feb 17

A day after Pakistan’s government arrested
Hafiz Saeed, chief of the banned Lashkar-e-Toiba (LeT), along with four
associates and issued orders against the Jamaat-ud-Dawa (JuD) and its
humanitarian aid front, the Falah-e-Insaniyet Foundation; the Pakistani street
is abuzz with speculation about what motivated this crackdown.

Pakistani government sources discreetly
suggest that Saeed was detained to insulate Pakistanis from President Donald
Trump’s order banning non-US travellers from seven Islamic countries from
entering the United States, and a follow-up suggestion from his Chief of Staff,
Reince Priebus, that this could be extended to Pakistan.

In contrast, Saeed flatly accuses Pakistan of
succumbing to Indian pressure.

“This is taking place because of [Prime
Minister Narendra] Modi's insistence, Trump's pressure and Pakistan's
helplessness”, Saeed stated after his arrest, according to Reuters.

Even so, the Pakistan Army’s acquiescence
would have been essential for such a step. Earlier this month, Business
Standard quoted top Pakistan Army sources who revealed that the new army chief,
General Qamar Javed Bajwa, was readying to curb the LeT and Jaish-e-Mohammed
(JeM) in order to ease tensions with India (January 11, “Is Pakistan Army preparing to turn on LeT and Jaish”).

According to Pakistan’s Dawn newspaper, the army’s public
relations chief, Major General Asif Ghafoor, stated at a media briefing on
Tuesday: “This (Saeed’s arrest) is a policy decision that the state took in
[the] national interest. Lots of institutions will have to do their jobs.”

This was the first time the Pakistan Army
has publicly backed the arrest of India-focused jihadis, which it has long
regarded as “strategic assets”.

That raises the question: has Trump’s blockage
of Muslim travellers provided the Pakistani army and government with a
plausible reason to crack down on Saeed and the LeT, without making it appear
like India was being placated?

The action taken against Saeed, is stronger
than what the Pakistani media has painted. For years, Saeed operated freely and
openly in Pakistan, thumbing his nose at a $10 million bounty that Washington offers
for information leading to his arrest, and being the star speaker at public
rallies that whip up hatred of India. Now, unexpectedly, he is detained under
Pakistan’s stern Anti-Terrorist Act of 1997.

Nor is the LeT chief under “house arrest” as
the media has erroneously noted. True, Saeed is at home in Lahore, but this has
been notified a sub-jail. He is under full arrest for activities that “harm
peace and security” of Pakistan.

This is significantly different from being
arrested for acting again India, or sending militants into Kashmir, all of which
are perceived as legitimate activities in Pakistan. When Saeed was placed under
home arrest after the LeT struck Mumbai on 26/11 [2008], the widespread impression
across Pakistan that this was at New Delhi’s behest ensured the terrorist chief
was released within six months.

This time round, there was a markedly
different feel to Saeed’s arrest. On Monday, when he was taken into custody
from Markaz Al-Qadsia, the JuD headquarters in Lahore, four key associates were
simultaneously picked up from across Punjab, reports the credible Pakistani
newspaper, The Express Tribune.

Indicating a centrally directed, geographically
dispersed crackdown, two associates --- Zafar Iqbal and Abdul Rehman Abid ---
were arrested from Markaz Tayyaba, the LeT headquarters at Muridke. A third, Abdullah
Ubaid, was picked up in Faisalabad; while a fourth, Kashif Niazi, was arrested
in Multan.

To nobody’s surprise, New Delhi has taken a
sceptical view of Saeed’s arrest. On Tuesday, the MEA stated: “We have seen
reports on the Pakistan Ministry of Interior order placing the Jamaat-ud-Dawa
and the Falah–e-Insaniyet Foundation under the watchlist (sic) and also the
notification under which the Falah-e-Insaniyet Foundation has been included in
the second schedule of their anti terror legislation under United Nations
Security Council Resolution No. 1267.”

“Exercises such as yesterday’s orders
against Hafiz Saeed and others have been carried out by Pakistan in the past
also. Only a credible crack down on the mastermind of the Mumbai terrorist
attack and terrorist organizations involved in cross border terrorism would be
proof of Pakistan’s sincerity”, said the MEA.

Analysts say quiet scepticism from New
Delhi would create a better climate for the government of Pakistan to act
against jihadi groups than overt triumphalism, or breast beating by the Indian
media. For now, a rampaging Trump has provided the necessary cover. It remains
to be seen whether Indian politicians, in an election season, can display
restraint and provide Pakistan with the space to act.

New Delhi sources are now watching
carefully for renewed progress in Zaki-ur-Rehman Lakhvi’s trial for the Mumbai
26/11 attack.

Monday, 30 January 2017

In countries that face serious security
challenges --- as India does with a two-front conventional and nuclear threat,
a 7,500-kilometre coastline, and serious internal security issues --- the
levels of security the military and defence industry can deliver mostly hinges
on how much money the government allocates to defence.

However, with the defence budget due to be unveiled
on Wednesday, enhanced allocations feature on only a few wish lists of the defence
industrialists that Business Standard spoke to. Instead, most hope that the
defence ministry clears the policy, taxation and procedural logjams that stall
capital procurement.

This is unsurprising, given that the
defence ministry returns unspent money to the exchequer most years. This
invariably comes out of the capital budget, impacting equipment modernisation
programmes. The military has no problem spending its revenue budget each year, but
the bulk of that goes on salaries and pensions, and running the military, from
which the defence industry hardly benefits. Last year, the revenue budget constituted
three quarters of the total defence allocation of Rs 340,922 crore. In
contrast, the capital budget amounted only to Rs 85,453 crore.

An analysis by Business Standard revealed
that capital expenditure has remained static over the last four years. In
2013-14, the last year of the United Progressive Alliance government, the
capital expenditure of the army, navy, air force and Defence R&D
Organisation (DRDO) was Rs 79,128 crore. This rose only marginally in the three
National Democratic Alliance budgets to Rs 80,884 crore in 2014-15, Rs 80,780
crore in 2015-16, and Rs 85,453 crore in the current year.

It will become clear this week how much of
the current allocation has actually been spent. Military financial planners
complain bitterly that the finance ministry deliberately stalls procurements in
the fourth quarter of the year, so that surrendered money is available to dress
up its expenditure account.

Much of the modest rise in defence
allocations over the last three years has been in the revenue budget, and has
gone towards meeting the expense of “One Rank, One Pension”. Similarly, much of
the rise in the coming budget would go towards meeting higher salary costs
necessitated by the 7th Central Pay Commission.

For industry, the issues remain two-fold.
Firstly, how much rise there will be in the capital allocation; and, second,
how much of it will go to foreign vendors, the defence public sector
undertakings (DPSUs) and the Ordnance Factory Board (OFB). That will determine
what is left for private defence firms.

For example, the procurement of 36 Rafale
fighters, means that a hefty chunk of the capital budget would be required for instalments
on that purchase. In an average year, 85-90 per cent of the capital budget is
pre-committed to purchases of earlier years.

Defence Minister Manohar Parrikar, whose
promises tend to be well ahead of actual implementation, has publicly declared
that, in the last two-and-a-half years, his ministry has placed procurement orders
worth Rs 230,000 crore, more than 90 per cent of them in categories that would benefit
vendors in India.

Parrikar has also set an ambitious target
of exporting $2 billion worth of defence systems from India by 2019. This has
aroused scepticism within industry, since it would require a four-fold increase
in three years over current export levels.

A staple complaint of private industry is a
taxation regime that favours foreign vendors over Indian firms. In the last
budget, a time-bound schedule was announced for phasing out incentives on
R&D expenditure, something that most governments encourage. Separately, an
Indian offset partner is required to pay taxes on the work the company does in
India, forcing it to route supplies through his foreign partner.

There is also widespread resentment at the
government’s slothfulness in placing orders, even though private companies have
invested heavily in creating R&D and manufacturing capabilities in the
country. “A procurement that comes through in five years is regarded as
lightning quick. What are we expected to do with our capacities while the file
is processed at tortoise speed?” asks a CEO.

Small industry is worst affected, since
cash-flow is a problem for many. MSMEs are hoping for credits, or loans at low
rates of interest, which would enable them to remain competitive with foreign
defence industry that gets loans at 1-2 per cent interest.

=============

The word from industry

Jayant Patil

Larsen & Toubro

In the FY 2016-17 budget, a roadmap was announced for phasing out benefits on R&D expenses under section 35(2AB). Such benefits should not only be continued, but enhanced in order to stimulate R&D for the high-tech defence, nuclear and aerospace sectors.

Jamshyd Godrej

Godrej & Boyce

“It is very complex and cumbersome to execute projects with government organisations. A significant reduction in complexity is essential for the private sector to execute projects efficiently.”

Ashok Atluri

Zen Technologies

“Government should scrap taxes on equipment being sold to defence. Taxing defence amounts to paying tax with one hand and taking it back with other hand. This has a high transaction cost for the government, and causes untold misery to companies, which struggle to raise the working capital to pay the taxes.

Ashok Kanodia

Precision Electronics Ltd

"Many Indian defence companies have invested serious money into building capabilities, but procurement files remain pending for years, causing serious cash-flow problems particularly for small and medium companies. So let 2017-18 be the year when the procurement budget is fully spent, and the bulk of it on Indian industry."

Colonel HS Shankar (Retd)

Alpha Design Technologies

“MSMEs are the backbone of defence production. The government should create financial packages for them, of long duration, low interest credits; and also ensure quick disbursement”.